Correlation Between Financial Select and Ishares Trust

Can any of the company-specific risk be diversified away by investing in both Financial Select and Ishares Trust at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Financial Select and Ishares Trust into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Financial Select Sector and Ishares Trust , you can compare the effects of market volatilities on Financial Select and Ishares Trust and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Financial Select with a short position of Ishares Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of Financial Select and Ishares Trust.

Diversification Opportunities for Financial Select and Ishares Trust

0.64

Correlation Coefficient

Financial Select  Ishares Trust

Poor diversification

The 3 months correlation between Financial and Ishares is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Financial Select Sector and Ishares Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ishares Trust and Financial Select is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Financial Select Sector are associated (or correlated) with Ishares Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ishares Trust has no effect on the direction of Financial Select i.e., Financial Select and Ishares Trust go up and down completely randomly.

Pair Corralation between Financial Select and Ishares Trust

Considering the 90-day investment horizon Financial Select Sector is expected to under-perform the Ishares Trust. But the etf apears to be less risky and, when comparing its historical volatility, Financial Select Sector is 1.57 times less risky than Ishares Trust. The etf trades about -0.17 of its potential returns per unit of risk. The Ishares Trust is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  3,202  in Ishares Trust on September 22, 2024 and sell it today you would earn a total of  112.20  from holding Ishares Trust or generate 3.5% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Financial Select Sector  vs.  Ishares Trust

Financial Select Sector

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Financial Select Sector are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady essential indicators, Financial Select may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Ishares Trust

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Ishares Trust are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Ishares Trust may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Financial Select and Ishares Trust

The main advantage of trading using opposite Financial Select and Ishares Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Financial Select position performs unexpectedly, Ishares Trust can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Ishares Trust will offset losses from the drop in Ishares Trust's long position.

The idea behind Financial Select Sector and Ishares Trust pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.